Standard Chartered's claim that sovereign wealth funds are potentially "irresponsible participants in the world economy" is an overreaction, according to UK counsel.
In an interview yesterday, the bank's chairman Mervyn Davies called for a code of conduct to create more transparency. This was significant given that Temasek, the Singapore state fund, holds an 18% stake in Standard Chartered.
But one UK corporate partner reacted by saying: "I don't understand all this fuss about sovereign wealth funds. Qatari funds have been active in London since the early nineties and no one has ever made a big deal about it.
"The national papers have suddenly latched onto them in much the same way that they did with private equity last year. It's pure scaremongering."
But it was exposure in the media and public pressure that led to Sir David Walker drafting a private equity code of conduct in November last year.
The focus on sovereign wealth funds can be attributed to the governments of Kuwait, Singapore and South Korea providing most of the $21 billion lifeline to Citigroup and Merrill Lynch earlier this month. The media has sunk its teeth into this and is unlikely to let go easily.
Also, Davies' position as leading business advisor to the UK Prime Minister Gordon Brown will increase the likelihood of a code being drafted for state-backed investment funds.
"A code of conduct would only serve to quieten people who are panicking for little reason," the UK corporate partner continued. "No one was concerned about transparency of sovereign wealth funds before, why should they start now?"
Lessons also have to be learned from last year's private equity code. People quickly realised that the code was merely a sop to their concerns. If a similar code is drawn up for sovereign wealth funds, it will have to have more weight to it.
Policy makers need to avoid over-zealous regulation that could smack of protectionism. Today, secretary general of the OECD Angel Gurria issued a warning to regulators.
"The OECD is saying buyers have to have transparency, abide by market rules. But sellers: don't overreact, don't over-regulate, don't over-control, don't over-legislate. They are helping investments, solving some of the problems, like global imbalances. They could become sovereign development funds," he said.
Sovereign wealth funds are backed by governments with surplus funds, mostly in the Gulf and Asia. They were established in order to manage national wealth more effectively and more actively. It is estimated that the top funds hold around $2.5 trillion in assets. By 2015, this is expected to have risen to $12 trillion.